Reading assignment for February 7, 2018
Contract of Suretyship- Section 177
The Contract of Insurance
1. Concepts defined
a. Contract of Insurance- Section 2 of the Insurance Code
b. “SEC. 2. Whenever used in this Code, the following terms shall
have the respective meanings hereinafter set forth or indicated,
unless the context otherwise requires:
c. “(a) A contract of insurance is an agreement whereby one
undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.
d. “A contract of suretyship shall be deemed to be an insurance
contract, within the meaning of this Code, only if made by a
surety who or which, as such, is doing an insurance business as
hereinafter provided.
e. “(b) The term doing an insurance business or transacting an
insurance business, within the meaning of this Code, shall
include:
f. “(1) Making or proposing to make, as insurer, any insurance
contract;
g. “(2) Making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any
other legitimate business or activity of the surety;
h. “(3) Doing any kind of business, including a reinsurance
business, specifically recognized as constituting the doing of an
insurance business within the meaning of this Code;
i. “(4) Doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to evade
the provisions of this Code.
j. “In the application of the provisions of this Code, the fact that no
profit is derived from the making of insurance contracts,
agreements or transactions or that no separate or direct
consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not constitute
the doing or transacting of an insurance business.
k. “(c) As used in this Code, the term Commissioner means
the Insurance Commissioner.
l.
“SEC. 177. A contract of suretyship is an agreement whereby a party
called the surety guarantees the performance by another party called
the principal or obligor of an obligation or undertaking in favor of a
third party called the obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by any company by virtue
of and under the provisions of Act No. 536, as amended by Act No.
2206.
2. Elements
a. Subject matter-Insurable interest
b. Consideration-Premium payments of which is based on the
probability of loss and extent of liability
c. Designated peril as cause
d. Object and purpose-Risk distribution scheme, assumption of risk
3. Characteristics/Nature of insurance contracts
a. Aleatory-Article 2010, Civil Code
b. Executory and conditional
c. Unilateral but synallagmatic
d. Consensual and voluntary- Articles 1305,1306 and 1308 of the
Civil Code
e. Contract of Adhesion
f. Contract of utmost good faith
g. Contract of indemnity- not for gain, make good for the loss
except in case of death since life is unquantifiable
4. Contracts for contingent services-Pre-need plans and similar
arrangements
Read: Philippine Health Care Providers vs. Commission on Internal
Revenue, G.R. No. 167330
5. General Classification of Insurance under the Code( pay attention
only to the definitions)
a. Life
Individual life- Sections 181 and 182
“SEC. 181. Life insurance is insurance on human lives and insurance
appertaining thereto or connected therewith.
“Every contract or undertaking for the payment of annuities including
contracts for the payment of lump sums under a retirement program
where a life insurance company manages or acts as a trustee for such
retirement program shall be considered a life insurance contract for
purposes of this Code.
“SEC. 182. An insurance upon life may be made payable on the death of
the person, or on his surviving a specified period, or otherwise
contingently on the continuance or cessation of life.
“Every contract or pledge for the payment of endowments or annuities
shall be considered a life insurance contract for purposes of this Code.
“In the absence of a judicial guardian, the father, or in the latter’s
absence or incapacity, the mother, of any minor, who is an insured or a
beneficiary under a contract of life, health, or accident insurance, may
exercise, in behalf of said minor, any right under the policy, without
necessity of court authority or the giving of a bond, where the interest of
the minor in the particular act involved does not exceed Five hundred
thousand pesos (P500,000.00) or in such reasonable amount as may be
determined by the Commissioner. Such right may include, but shall not
be limited to, obtaining a policy loan, surrendering the policy, receiving
the proceeds of the Policy, and giving the minor’s consent to any
transaction on the policy.
“In the absence or in case of the incapacity of the father or mother, the
grandparent, the eldest brother or sister at least eighteen (18) years of
age, or any relative who has actual custody of the minor insured or
beneficiary, shall act as a guardian without need of a court order or
judicial appointment as such guardian, as long as such person is not
otherwise disqualified or incapacitated. Payment made by the insurer
pursuant to this section shall relieve such insurer of any liability under the
contract.
Group life-Section 234
“SEC. 234. No policy of group life insurance shall be issued and
delivered in the Philippines unless it contains in substance the following
provisions, or provisions which in the opinion of the Commissioner are
more favorable to the persons insured, or at least as favorable to the
persons insured and more favorable to the policyholders:
“(a) A provision that the policyholder is entitled to a grace period of either
thirty (30) days or of one (1) month for the payment of any premium due
after the first, during which grace period the death benefit coverage shall
continue in force, unless the policyholder shall have given the insurer
written notice of discontinuance in advance of the date of discontinuance
and in accordance with the terms of the policy. The policy may provide
that the policyholder shall be liable for the payment of a pro ratapremium
for the time the policy is in force during such grace period;
“(b) A provision that the validity of the policy shall not be contested,
except for nonpayment of premiums after it has been in force for two (2)
years from its date of issue; and that no statement made by any insured
under the policy relating to his insurability shall be used in contesting the
validity of the insurance with respect to which such statement was made
after such insurance has been in force prior to the contest for a period of
two (2) years during such person’s lifetime nor unless contained in a
written instrument signed by him;
“(c) A provision that a copy of the application, if any, of the policyholder
shall be attached to the policy when issued, that all statements made by
the policyholder or by persons insured shall be deemed representations
and not warranties, and that no statement made by any insured shall be
used in any contest unless a copy of the instrument containing the
statement is or has been furnished to such person or to his beneficiary;
“(d) A provision setting forth the conditions, if any, under which the
insurer reserves the right to require a person eligible for insurance to
furnish evidence of individual insurability satisfactory to the insurer as a
condition to part or all of his coverage;
“(e) A provision specifying an equitable adjustment of premiums or of
benefits or of both to be made in the event that the age of a person
insured has been misstated, such provision to contain a clear statement
of the method of adjustment to be used;
“(f) A provision that any sum becoming due by reason of death of the
person insured shall be payable to the beneficiary designated by the
insured, subject to the provisions of the policy in the event that there is
no designated beneficiary, as to all or any part of such sum, living at the
death of the insured, and subject to any right reserved by the insurer in
the policy and set forth in the certificate to pay at its option a part of such
sum not exceeding Five hundred pesos (P500.00) to any person
appearing to the insurer to be equitably entitled thereto by reason of
having incurred funeral or other expenses incident to the last illness or,
death of the person insured;
“(g) A provision that the insurer will issue to the policyholder for delivery
to each person insured a statement as to the insurance protection to
which he is entitled, to whom the insurance benefits are payable, and the
rights set forth in paragraphs (h), (i) and (j) following;
“(h) A provision that if the insurance, or any portion of it, on a person
covered under the policy ceases because of termination of employment
or of membership in the class or classes eligible for coverage under the
policy, such person shall be entitled to have issued to him by the insurer,
without evidence of insurability, an individual policy of life insurance
without disability or other supplementary benefits, provided application
for the individual policy and payment of the first premium to the insurer
shall be made within thirty (30) days after such termination, and provided
further that:
“(1) The individual policy shall be on any one of the forms, except term
insurance, then customarily issued by the insurer at the age and for an
amount not in excess of the coverage under the group policy; and
“(2) The premium on the individual policy shall be at the insurer’s then
customary rate applicable to the form and amount of the individual policy,
to the class of risk to which such person then belongs, and to his age
attained on the effective date of the individual policy.
“(i) A provision that if the group policy terminates or is amended so as to
terminate the insurance of any class of insured persons, every person
insured thereunder at the date of such termination whose insurance
terminates and who has been so insured for five (5) years prior to such
termination date shall be entitled to have issued to him by the insurer an
individual policy of life insurance subject to the same limitations as set
forth in paragraph (h), except that the group policy may provide that the
amount of such individual policy shall not exceed the amount of the
person’s life insurance protection ceasing;
“(j) A provision that if a person insured under the group policy dies during
the thirty (30)-day period within which he would have been entitled to an
individual policy issued to him in accordance with paragraphs (h) and (i)
above and before such individual policy shall have become effective, the
amount of life insurance which he would have been entitled to have
issued to him as an individual policy shall be payable as a claim under
the group policy whether or not application for the individual policy or the
payment of the first premium has been made;
“(k) In the case of a policy issued to a creditor to insure debtors of such
creditor, a provision that the insurer will furnish to the policyholder for
delivery to each debtor insured under the policy a form which will contain
a statement that the life of the debtor is insured under the policy and that
any death benefit paid thereunder by reason of his death shall be applied
to reduce or extinguish indebtedness.
“The provisions of paragraphs (f) to (j) shall not apply to policies issued
to a creditor to insure his debtors. If a group life policy is on a plan of
insurance other than term, it shall contain a non-forfeiture provision or
provisions which in the opinion of the Commissioner is or are equitable to
the insured or the policyholder: Provided, That nothing herein contained
shall be so construed as to require group life policies to contain the same
non-forfeiture provisions as are required of individual life policies.
Industrial life- Sections 235 to 236
“SEC. 235. The term industrial life insurance as used in this Code shall
mean that form of life insurance under which the premiums are payable
either monthly or oftener, if the face amount of insurance provided in any
policy is not more than five hundred times that of the current statutory
minimum daily wage in the City of Manila, and if the words industrial
policy are printed upon the policy as part of the descriptive matter.
“An industrial life policy shall not lapse for nonpayment of premium if
such nonpayment was due to the failure of the company to send its
representative or agent to the insured at the residence of the insured or
at some other place indicated by him for the purpose of collecting such
premium: Provided, That the provisions of this paragraph shall not apply
when the premium on the policy remains unpaid for a period of three (3)
months or twelve (12) weeks after the grace period has expired.
“SEC. 236. In the case of industrial life insurance, the policy shall contain
in substance the following provisions:
“(a) A provision that the insured is entitled to a grace period of four (4)
weeks within which the payment of any premium after the first may be
made, except that where premiums are payable monthly, the period of
grace shall be either one (1) month or thirty (30) days; and that during
the period of grace, the policy shall continue in full force, but if during
such grace period the policy becomes a claim, then any overdue and
unpaid premiums may be deducted from any amount payable under the
policy in settlement;
“(b) A provision that the policy shall be incontestable after it has been in
force during the lifetime of the insured for a specified period, not more
than two (2) years from its date of issue, except for nonpayment of
premiums and except for violation of the conditions of the policy relating
to naval or military service, or services auxiliary thereto, and except as to
provisions relating to benefits in the event of disability as defined in the
policy, and those granting additional insurance specifically against death
by accident or by accidental means, or to additional insurance against
loss of, or loss of use of, specific members of the body;
“(c) A provision that the policy shall constitute the entire contract
between the parties, or if a copy of the application is endorsed upon and
attached to the policy when issued, a provision that the policy and the
application therefor shall constitute the entire contract between the
parties, and in the latter case, a provision that all statements made by
the insured shall, in the absence of fraud, be deemed representations
and not warranties;
“(d) A provision that if the age of the person insured, or the age of any
person, considered in determining the premium, or the benefits accruing
under the policy, has been misstated, any amount payable or benefit
accruing under the policy shall be such as the premium paid would have
purchased at the correct age;
“(e) A provision that if the policy is a participating policy, the company
shall periodically ascertain and apportion any divisible surplus accruing
on the policy under the conditions specified therein;
“(f) A provision that in the event of default in premium payments after
three (3) full years’ premiums have been paid, the policy shall be
converted into a stipulated form of insurance, and that in the event of
default in premium payments after five (5) full years’ premiums have
been paid, a specified cash surrender value shall be available, in lieu of
the stipulated form of insurance, at the option of the policyholder. The net
value of such stipulated form of insurance and the amount of such cash
value shall not be less than the reserve on the policy and dividend
additions thereto, if any, at the end of the last completed policy year for
which premiums shall have been paid (the policy to specify the mortality
table, rate of interest and method of valuation adopted to compute such
reserve), exclusive of any reserve on disability benefits and accidental
death benefits, less an amount not to exceed two and one-half percent
(2½%) of the maximum amount insured by the policy and dividend
additions thereto, if any, when the issue age is under ten (10) years, and
less an amount not to exceed two and one-half percent (2½%) of the
current amount insured by the policy and dividend additions thereto, if
any, if the issue age is ten (10) years or older, and less any existing
indebtedness to the company on or secured by the policy;
“(g) A provision that the policy may be surrendered to the company at its
home office within a period of not less than sixty (60) days after the due
date of a premium in default for the specified cash value: Provided, That
the insurer may defer payment for not more than six (6) months after the
application therefor is made;
“(h) A table that shows in figures the nonforfeiture benefits available
under the policy every year upon default in payment of premiums during
at least the first twenty (20) years of the policy, such table to begin with
the year in which such values become available, and a provision that the
company will furnish upon request an extension of such table beyond the
year shown in the policy;
“(i) A provision that specifies which one of the stipulated forms of
insurance provided for under the provision of paragraph (f) of this section
shall take effect in the event of the insured’s failure, within sixty (60) days
from the due date of the premium in default, to notify the insurer in
writing as to which one of such forms he has selected;
“(j) A provision that the policy may be reinstated at any time within two
(2) years from the due date of the premium in default unless the cash
surrender value has been paid or the period of extended term insurance
expired, upon production of evidence of insurability satisfactory to the
company and payment of arrears of premiums with interest at a rate not
exceeding six percent (6%) per annum payable annually;
“(k) A provision that when a policy shall become a claim by death of the
insured, settlement shall be made upon receipt of due proof of death, or
not later than two (2) months after receipt of such proof;
“(l) A title on the face and on the back of the policy correctly describing
its form;
“(m) A space on the front or the back of the policy for the name of the
beneficiary designated by the insured with a reservation of the insured’s
right to designate or change the beneficiary after the issuance of the
policy. The policy may also provide that no designation or change of
beneficiary shall be binding on the insurer until endorsed on the policy by
the insurer, and that the insurer may refuse to endorse the name of any
proposed beneficiary who does not appear to the insurer to have an
insurable interest in the life of the insured. Such policy may also contain
a provision that if the beneficiary designated in the policy does not
surrender the policy with due proof of death within the period stated in
the policy, which shall not be less than thirty (30) days after the death of
the insured, or if the beneficiary is the estate of the insured, or is a minor,
or dies before the insured, or is not legally competent to give valid
release, then the insurer may make any payment thereunder to the
executor or administrator of the insured, or to any of the insured’s
relatives by blood or legal adoption or connections by marriage or to any
person appearing to the insurer to be equitably entitled thereto by reason
of having incurred expense for the maintenance, medical attention or
burial of the insured; and
“(n) A provision that when an industrial life insurance policy is issued
providing for accidental or health benefits, or both, in addition to life
insurance, the foregoing provisions shall apply only to the life insurance
portion of the policy.
“Any of the foregoing provisions or portions thereof not applicable to
nonparticipating or term policies shall to that extent not be incorporated
therein. The foregoing provisions shall not apply to policies issued or
granted pursuant to the nonforfeiture provisions prescribed in provisions
of paragraphs (f) and (i) of this section, nor shall provisions of
paragraphs (f), (g), (h), and (i) hereof be required in term insurance of
twenty (20) years or less but such term policies shall specify the mortality
table, rate of interest, and method of computing reserves.
Non-life
Marine-Section 101
“SEC. 101. Marine Insurance includes:
“(a) Insurance against loss of or damage to:
“(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise, effects, disbursements, profits, moneys, securities, choses
in action, instruments of debts, valuable papers, bottomry, and
respondentia interests and all other kinds of property and interests
therein, in respect to, appertaining to or in connection with any and all
risks or perils of navigation, transit or transportation, or while being
assembled, packed, crated, baled, compressed or similarly prepared for
shipment or while awaiting shipment, or during any delays, storage,
transhipment, or reshipment incident thereto, including war risks, marine
builder’s risks, and all personal property floater risks;
“(2) Person or property in connection with or appertaining to a marine,
inland marine, transit or transportation insurance, including liability for
loss of or damage arising out of or in connection with the construction,
repair, operation, maintenance or use of the subject matter of such
insurance (but not including life insurance or surety bonds nor insurance
against loss by reason of bodily injury to any person arising out of
ownership, maintenance, or use of automobiles);
“(3) Precious stones, jewels, jewelry, precious metals, whether in course
of transportation or otherwise; and
“(4) Bridges, tunnels and other instrumentalities of transportation and
communication (excluding buildings, their furniture and furnishings, fixed
contents and supplies held in storage); piers, wharves, docks and slips,
and other aids to navigation and transportation, including dry docks and
marine railways, dams and appurtenant facilities for the control of
waterways.
“(b) Marine protection and indemnity insurance, meaning insurance
against, or against legal liability of the insured for loss, damage, or
expense incident to ownership, operation, chartering, maintenance, use,
repair, or construction of any vessel, craft or instrumentality in use of
ocean or inland waterways, including liability of the insured for personal
injury, illness or death or for loss of or damage to the property of another
person.
Fire-Section 169 -Strict interpretation

“SEC. 169. As used in this Code, the term fire insurance shall
include insurance against loss by fire, lightning, windstorm, tornado
or earthquake and other allied risks, when such risks are covered by
extension to fire insurance policies or under separate policies.
Read: Cebu shipyard vs. William Lines, G.R. No. 132607, Fortune
Insurance vs. CA, G.R. No. 115278, New Life Enterprises vs. CA,
G.R. No. 94071, Ty vs. First National, G.R. No. 16138

Casualty-Section 176

“SEC. 176. Casualty insurance is insurance covering loss or liability

arising from accident or mishap, excluding certain types of loss which by
law or custom are considered as falling exclusively within the scope of
other types of insurance such as fire or marine. It includes, but is not
limited to, employer’s liability insurance, motor vehicle liability insurance,
plate glass insurance, burglary and theft insurance, personal accident
and health insurance as written by non-life insurance companies, and
other substantially similar kinds of insurance.

Suretyship-Section 177

“SEC. 177. A contract of suretyship is an agreement whereby a party

called the surety guarantees the performance by another party called
the principal or obligor of an obligation or undertaking in favor of a
third party called the obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by any company by virtue
of and under the provisions of Act No. 536, as amended by Act No.
2206.

6. Construction/Interpretaion of Insurance contracts

-Liberal interpretation

Read: Malayan Insurance vs. CA, G.R. No. 119599, Eternal Gardens
vs. Philhealth Insurance, G.R. No. 166245, Western Guaranty vs. CA,
G.R. No. 91666, Que vs. Law Union, G.R. No. L-4611